AUD/USD pops on hint of a pivot from FOMC officials

• AUD/USD bulls step in on a whisper of a dovish pivot at the Fed. 
• The FOMC minutes have been digested, on the knee-jerk, as less hawkish.

AUD/USD has popped on the back of a hint of a dovish tilt at the Federal Reserve following the release o the minutes that signified that officials are concerned about the detrimental effects higher rates will have on the US economy. At the time of writing, AUD/USD is trading at 0.6285, a touch below the post-FOMC minute's highs of 0.6298. The pair have travelled between a low of 0.6235 and 0.6298 so far.

On the margin, these minutes could be taken as somewhat less hawkish than the rhetoric that we have heard from Fed speakers and lean towards a pivot: "Several participants noted that... it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook."

In additional notes, however, the minutes stated that Fed officials determined that they needed to adopt and maintain a more restrictive policy stance in order to achieve their goal of lowering elevated inflation.

• Many participants raised their assessment of the federal funding path required to meet committee objectives.
• Many participants indicated that once the policy had reached a sufficiently restrictive level, it would be appropriate to keep it there for a period of time.
• Several participants predicted that as policy became more restrictive, risks would become more two-sided.
• Several participants emphasized the importance of maintaining a restrictive stance for as long as necessary.
• Despite a slowing labour market, officials are committed to raising interest rates.

Meanwhile, and as for the Reserve Bank of Australia, the Assistant Governor (Economic) Luci Ellis's speech titled "The Neutral Rate: The Pole-star Casts Faint Light" didn't shed much light on the policy path ahead, as analysts at TD Securities noted.

''Instead'', they said, the speech was ''reiterating the Bank's view that neutral interest rate is probably "at least 2.5%". The RBA models estimate that the real neutral rate is roughly in the range from "-0.5% to 2%", and an average pins it just under 1%.''

The analysts explained that ''this is close to the RBA's previous update of the real neutral rate in 2017 where the RBA estimated the real neutral cash rate to be around 1%.''

''The Asst Governor further emphasised that the neutral rate is broadly an estimate and not to think of it "as a mechanistic approach of ‘we have to get back to neutral’, or above neutral".''

The analyst's main takeaway from the speech is that the RBA is trying to make clear to the market that the hiking cycle is likely not over despite the RBA returning to its "business as usual" approach of 25bps hikes. ''We view any expectation for the RBA to near a pause as misguided and see the Bank hiking the cash rate by 25bps consecutively to 3.60% by March 2023.''

AUD/USD technical analysis

as the above 15-minute chart illustrates, the pair have attempted to break out from the consolidation as it pushes back against the trendline support following the double-bottom pout in earlier in the day. Should the bulls commit, then there will be a case for a significant move towards the prior day;s and last week's highs.